Dubai World shake-up unlikely to harm UAE credit rating

The restructuring of Dubai World is unlikely to harm the credit ratings of the UAE and Abu Dhabi, ratings agency Moody's said on Monday.

In a statement, the ratings agency said although the impact on the non-hydrocarbon sectors of the domestic economy could "potentially be severe", especially in Dubai, the country was protected by Abu Dhabi's oil wealth.

"Overall macro-economic stability is protected by the country's strong net external creditor position that is bolstered by Abu Dhabi's accumulated oil wealth," added Tristan Cooper, head analyst for Middle East Sovereigns at Moody's in Dubai.

"The recently announced restructuring of Dubai World's liabilities is unlikely to threaten the credit quality of the government of Abu Dhabi and the federal government of the UAE. Both of these governments are rated Aa2 with a stable outlook."

The main factor underpinning the UAE's high investment-grade sovereign rating was its robust external position, Cooper added.

"This is largely due to the ample stock of offshore financial assets held by the Abu Dhabi Investment Authority (ADIA), the state-owned entity responsible for investing the bulk of Abu Dhabi's oil-driven fiscal surpluses."

Moody's said the fiscal position of the UAE, and Abu Dhabi in particular, remained healthy.

The UAE's consolidated fiscal surplus has averaged at around 20 percent of GDP over the past five years and is likely to post a small surplus in 2009 despite a sharp fall in oil export revenues and surging expenditure at the Abu Dhabi and federal levels," the agency said.

Moody's added that it was "highly likely" that Dubai's economy, which accounts for around a third of the UAE's total GDP, would be impacted heavily by the announced restructuring of Dubai World.

"The economic repercussions of the crisis surrounding Dubai World have yet to play out but could potentially be substantial, notwithstanding the central bank's assurance that it stands fully behind the country's banks," said Cooper.

However, he added that the fiscal revenues of Abu Dhabi - the largest contributor to the federal budget - were largely insensitive to developments in the non-hydrocarbon sector as they are mostly generated from oil exports.

Moody's last rating action on the UAE's sovereign rating occurred in July 2007, when the country's foreign and local currency government bond ratings were upgraded to Aa2.

The last rating action on Abu Dhabi was in the same month when Moody's assigned Aa2 ratings to the emirate.

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